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While the deteriorating PC market threatens Seagate's growth prospects, the stock is very cheap, and offers an attractive 4.6% dividend.

It's been a rough year for Seagate Technology (NASDAQ:STX), to say the least. Shares of the hard-drive maker are down approximately 30% year to date, due to rising fears that the deterioration in the PC industry this year will spread to manufacturers of PC accessories, such as the hard drives that Seagate produces. Seagate essentially confirmed these fears when it reduced its financial targets for the current quarter.

But while things look bad, the stock could be an opportunity for investors who aren't afraid of taking a contrarian view. Shares of Seagate have been beaten down so badly this year that they're now cheap. Here are the key factors weighing on Seagate in 2015, and why the stock may be worth holding anyway.

The bad newsUnfortunately, there's a lot of bad news out there. Signs are popping up all over the place that the PC market is in really bad shape.

Technology research firms IDC and Gartner both found that PC shipments are down significantly this year. Gartner's research indicated that global PC shipments fell 9% year over year in the second quarter.

IDC's findings were even more troublesome -- it estimated that worldwide PC shipments declined 11% in the same period. These are striking numbers that would represent the steepest quarterly decline in the past two years.

One of the reasons for sluggish PC demand could be the upcoming release of Windows 10. In addition, PCs face tough comparisons this year, as PC shipments last year benefited from a large refresh cycle, particularly in the enterprise market. Third, PCs are struggling because a greater share of computing is being performed on mobile devices like smartphones.

This hurts Seagate because of the rippling effect to PC-related accessories, such as data-storage devices. Because of this, earlier this month Seagate cut its forecast for revenue and gross margin for its recently-ended fourth fiscal quarter.

The company now expects $2.9 billion in revenue for the quarter, a steep reduction from its prior forecast, which called for $3.2 billion-$3.3 billion. Non-GAAP gross margin will likely clock in at 27%, about 1.5 percentage points lower than previous expectations.

Management attributed this to lower-than-expected demand, without offering much in the way of specifics. Fortunately, there is an investment case to be made for Seagate if the difficult operating climate improves going forward.

The good newsAt the very least, Seagate's huge stock price drop this year has left the stock cheap, which could lure investors attracted by the low valuation and high dividend. Seagate stock trades for just 11 times forward earnings estimates and 1.1 times revenue. Its enterprise value is just 6.6 times earnings before interest, taxes, depreciation, and amortization.

These multiples are very low, meaning the market is factoring in little to no growth going forward. If Seagate can manage to clear what amounts to a very low hurdle, the stock could enjoy a significant snap-back.

Plus, investors will receive a very high 4.5% dividend going forward. This compensates investors for waiting for a potential turnaround. Seagate's dividend is a rare find in the market these days, especially for a technology company. Close competitor Western Digital only offers a 2.5% dividend. In fact, Seagate's dividend yield is very close to a five-year high.

Seagate's dividend looks well-cushioned with underlying free cash flow, which is a great sign. The company generated $1.8 billion in free cash flow during the first three quarters of its current fiscal year. The dividend cost $493 million in this period, which equates to a very manageable 26% free cash flow payout ratio.

If the macroeconomic conditions in the PC industry continue to deteriorate, it will be difficult for Seagate stock to do well. But any improvement in PC shipments during the back half of 2015 could make Seagate a winning investment based on how cheap it is right now. And investors at least have the dividend, which appears secure.

Author

Bob Ciura, MBA, has written for The Motley Fool since 2012. I focus on energy, consumer goods, and technology. I look for growth at a reasonable price, with a particular fondness for market-beating dividend yields.